It’s very tempting, especially when starting a business, to rely on the goodwill of other people. That might mean using voluntary help to serve your customers or to take care of your marketing or administration. It might mean negotiating a deal to use empty or underused premises. The problem with favours is that they are unsustainable.
When people are doing you a favour they are not generally as committed as they would be if they were doing it for a reward. They will prioritise family, home, work and possibly friends ahead of you. If they can’t come in today that’s bad luck but they have less guilt because they are doing you a favour. It’s the same with premises, a landlord might be happy to let you use his premises until such time as he gets a better commercial deal. At that point you will be kicked out with little notice. A venue might be prepared to host one event for you but, unless it leads to significant business, they will be reluctant to host another without payment. When you seek a favour you will always be vulnerable to a better offer.
Set your prices as if you were paying
Now you may not be able to afford to pay commercial rates for staff or premises when you start out but it is vital that you set your prices as if you were paying. People may do you a favour to give you a start but they are unlikely to want to make a long term commitment. Once you are up and running you will be expected to pay, if you have not factored that into your pricing strategy how will you cope? It’s not easy to raise prices and keep customers.
What’s your back up plan?
It’s also important to have a back up plan. What will happen if a key volunteer can’t come in? Do you have someone else you can call upon? Have you researched alternative premises in case your landlord gives you notice?
Recently I’ve heard several sob stories where people have relied on favours which have not been sustainable. One successful business found themselves with less than two weeks to find a new premises. Another business owner didn’t have access to vital business performance information because the friend who was doing her a favour had other priorities. In another case a business organisation was struggling to find hosts for events because another organisation had used up some favours from potential venues.
Have you got the right business model?
The trouble with favours is that it’s almost impossible to get them formalised in a contract. When we negotiate a commercial deal we can at least get notice periods built into the contract so we have wriggle room. We can also set our prices on a proper, sustainable basis. If you can’t manage without favours is your business model really sustainable? If people will not pay enough to cover the costs of staff, premises, catering etc. then what you offer is not valuable enough to them. Sometimes we have to listen to the feedback and take tough decisions however much it hurts. That doesn’t necessarily mean giving up but it does mean looking at the business model.
If you need help developing a sustainable business model email me. We have a range of services designed to help you start and grow a business.
In September 2013 The Training Pack will celebrate 21 years of helping people to start and grow businesses. We offer training, one to one advice and practical marketing help on a cost effective basis. If you would like to find out how we can help you book yourself in for one of our free 30 minute no obligation initial consultation calls?